The Case for High Yield: 7.25%, Reasonable Risk

This transcript has been automatically generated and may not be 100% accurate.

I ... for the price of oil other commodities started plummeting it didn't seem like you're getting paid for the rest of the high yield market ... dietary pay for investors are well aware of those risks ... and Jack Otter and her Barron's dot com on his Richard linguist ... whose global head of high heels and Morgan Stanley Investment Management ... can you give us the quick and dirty history the high heel mark in the past two years out what's going on ... sure well Heidi old obstacle in the in the ... fall of last year ... so a big IA ... the whining in spreads in at the gas was audio not Hammergren settling up is that the rosy mostly driven by a big selloff the price of oil ... tell us tell you has about fifteen percent in the index in energy sector ... it spooked investors we saw a redemptions of sauce for is worn out ... I'll most four hundred basis points from June ... through mid February of two thousand sixteen new six friends your friends the difference between the average high yield bond and tenure TreasuryDirect yes and so now you put that average high heeled to pay out at about one ... well we repeat said on the index impeached over ten percent second week of February ... that were down around the seven twenty five for him so we've had ... the rally since then it but you still see opportunity ... he I think it was still trading at spreads in a more reflective of a ... up ... heading into recession and we are spreads reflect and slow growth economy ... so slow growth not great but increases steadily get your your freedom ice cube on ... them in once two percent cut in GDP GDP growth is what we're looking at here ... so obviously the difference between the highest yielding issues said that's around fifteen percent range and mysterious energy companies that's much lower so where are you looking to get in Germany and its ... so since the end our portfolios we have a bigger focus so we call middle market credits ... coming seven billion dollars or less in total debt outstanding ... the ten The over hundred and fifty basis points more than their larger competitors ... that have similar default experience historically stories staying away from energy so ... that we have energy but ... I have to be selective in what part of the energy market here in ... our in mid stream companies as well as some PP companies ... pretty much out of ... coal natural gas and energy service companies to mainstream are the isthe aam ... on his MLP suspect that death doesn't store transporter to don gas or oil ... MEMP would sound to me scary at a time when there's a worldwide glut ... true but it seems that fundamentals is slowly improved on and on the oil side ... there's been huge cap on spending for cutbacks by the majors and buy high heels companies some productions gradually coming down to killing us ... and it is the possibility of a free user some cut production cut by OPEC ... no one knows what's going happen there was anything positive happens it'll put upward pressure on mom that it was arson crafts ... so with a cigar in here is is just basically a creepier to pon comment saying or do you expect that you could see capital gains why think you ... were trading still very correlate oil a thing if oil prices continue to move higher ... you can have ... deftly have capital gains in this market ... the risk is if oil were for CEOs lower or you may or may get some ... some near-term see me sleep back but overall I think you're being compensated to spread levels ... than it actually for the rest of the area I would say ... is better chance to capital gains ... and one more question ... I see the risk is not only that interest rates go up ... but also that your hobbies defaults on so many human ... well I think a argues that the Fed's going to raise rates once more this year and we're not looking ... real effect ahead of December's were not as ... concerned about in your term rate rise ... I think default rates for exports ex energy X metals and mining is still be about ... to tune a half percent ... this can be much higher when you take into account some these energy metals and mining companies ... but the bonds are reflecting default risk in or prices in ... the headline number could be five six percent or even greater for all those lower but ... again I think that's priced into the market ... I think it could reject ...